This story is the final chapter in a five-part series: Alarm bells, arrogance and the crisis at Wells Fargo.
On a cloudy day in December 2016, more than a dozen government officials gathered inside a large conference room at One Penn Center, an Art Deco-style building in downtown Philadelphia.
They represented various agencies that were investigating unauthorized customer accounts at Wells Fargo — the Department of Justice, the FBI, the U.S. Postal Inspection Service and the Securities and Exchange Commission, which was hosting the meeting. Everyone’s attention was fixed on Michael Bacon, the bank’s former chief security officer, who had arrived with two attorneys and a paralegal. “It was weird to be the man of the hour,” Bacon recalled.
Three months earlier, it emerged that Wells Fargo had fired 5,300 employees in recent years for sales misconduct. That number reverberated. More revelations quickly followed, and CEO John Stumpf resigned after a disastrous appearance on Capitol Hill. Soon the bank was facing an avalanche of government investigations.
Around the same time, Bacon retained Sanford Heisler Sharp, a law firm that specializes in representing whistleblowers, to research potential legal actions.
During the meeting in Philadelphia, Bacon felt that he was able to demystify the fake-accounts fiasco for government investigators who were still at an early stage of their work. As he recalls it, he told them: “This is what happened, this is how far back it goes, this is what continued to happen. And this is who knew about it, and condoned it.”
Bacon also told the government investigators that sales abuses had been occurring in other parts of the company, beyond just the retail banking unit.
He got the sense that his cooperation was highly valued. What he was providing wasn’t hearsay. It was the firsthand knowledge of an executive with access to the top levels of the bank. And it was supported by documents. “When I think back on it, it felt like they were just so appreciative that somebody stepped forward, and is willing to share a perspective that hasn’t been shared,” Bacon said. “And they needed that.”
For Bacon, the Philadelphia meeting was the start of a multiyear journey of cooperation with the government. More meetings followed, roughly a dozen across various agencies. He turned over hard copies of emails that he had boxed up and taken home shortly before his departure from Wells Fargo in 2014.
At first, the Department of Justice, which had opened a criminal investigation, was the driving force. But as time went by, Bacon dealt more with the Office of the Comptroller of the Currency, which was Wells Fargo’s primary regulator.
In the spring of 2018, he received a subpoena to be deposed by the OCC. The deposition was held on May 4 in downtown San Francisco, just around the corner from Wells Fargo’s headquarters. The questioning — mostly conducted by an OCC lawyer named Tarek Sawi — lasted for much of the day. Sawi’s detailed knowledge of the situation impressed Bacon. “I remember the joy I felt,” he said. “You could tell he had done thorough research.”
One line of questioning involved an email that Bacon sent to his boss, HR Director Hope Hardison, in June 2013. “I just got a call that made me laugh, albeit in an unfortunate way,” Bacon wrote in the email. “As you know, sales integrity is a huge challenge.”
He went on to explain that the bank had opened a few “undercover” accounts earlier that week in San Francisco. These were accounts with no real customer, which the bank allowed law enforcement agencies to set up and use in the course of their work. Within 24 hours of these particular accounts being opened, two different employees in Wells Fargo’s retail banking unit had ordered debit cards, attesting in the system that they had spoken to the customer and gotten authorization, according to Bacon.
“Geeeez. All I can do is shake my head,” Bacon wrote in the email to Hardison. During his deposition, Bacon testified that he reported the incident to his boss as part of his continuing effort to tell her about the extent of the company’s sales integrity problem. “I will state that there was absolutely no way this was a mistake,” Bacon testified. “Clearly they’re trolling the system for an opportunity to order debit cards.”
While Bacon was emerging as a star witness for the government, his former colleague Loretta Sperle was struggling to navigate the scandal’s massive fallout.
After assuming Bacon’s former role as head of internal investigations, and seeing fake accounts at Wells Fargo become front-page news in 2016, Sperle faced several problems. One was an unmanageable caseload. In 2015, the internal investigations unit handled 10,000 cases a year. Four years later, amid much more regulatory scrutiny, that number had ballooned to 50,000, according to Sperle.
She no longer faced resistance to bringing on additional investigators. In fact, Wells started paying contract attorneys to conduct investigations. But the influx of investigators, who needed to be trained and managed, posed its own challenges. “I could hire as many people as I wanted, but I couldn’t absorb them,” Sperle said.
Meanwhile, the OCC, the Consumer Financial Protection Bureau and the bank’s internal auditors were all evaluating the quality of the work being done by the investigations team. “And they started to see some cracks and some quality issues in that work, just because of the volume,” Sperle said. “It just became, ‘OK, we got all these issues in investigations.'”
In light of the massive volume of cases, Sperle felt that Wells Fargo should have sought to work with its regulators to come up with a smarter approach to investigating sales misconduct from many years earlier. “We told the regulators, ‘We work everything no matter how old it is.’ And nobody would go to them and really try to come up with, ‘What is the right plan?’ ” Sperle recalled.
By this time, as a torrent of other scandals emerged at the bank, it had also become harder for Wells managers to do their jobs. After reports emerged of retaliation by managers against employees, the pendulum swung in the opposite direction. “We all joked it was the worst time to be a manager,” Sperle said. “You could do nothing, you had no authority, you could not touch an employee, and they knew it.”
Meanwhile, the government’s investigations started to bear fruit. In January 2020, former Wells Fargo CEO John Stumpf agreed to pay a $17.5 million penalty and consented to a ban from banking. Stumpf had resigned in October 2016, and the bank had already clawed back approximately $69 million of his compensation. His lawyers did not respond to requests for comment.
Hardison, who was promoted from HR director to chief administrative officer before leaving the bank in 2018, reached a $2.25 million settlement with the OCC in 2020. Hardison declined to comment, but during testimony she gave in 2021, she highlighted her support for centralizing various functions at Wells Fargo, saying that the sales practices problems were an indication of why the changes were needed.
“I thought that a centralized model was more effective, more efficient, and a better control model,” Hardison testified.
Three years after retiring as chief risk officer, Mike Loughlin agreed to pay $1.25 million. In early 2021, former General Counsel Jim Strother, who’d left the bank four years before, settled civil charges by the OCC for $3.5 million. Lawyers for Loughlin and Strother did not respond to requests for comment.
Despite the government’s efforts to impose financial penalties, none of the bank’s former top executives have gone to jail or been charged criminally. And many of them — including Pat Callahan, the bank’s former chief administrative officer, and Tim Sloan, who served in a variety of senior roles prior to becoming chief executive in 2016 — have avoided civil charges.
Callahan’s retirement from the bank was announced just eight days before the OCC ordered Wells Fargo to address various sales-related matters in June 2015. Sloan’s rocky tenure as CEO ended abruptly in 2019 after problematic congressional testimony, much like Stumpf’s had two and a half years earlier. Lawyers for Callahan and Sloan did not respond to requests for comment.
Four more former Wells Fargo executives, after being hit by the OCC with civil charges, denied wrongdoing and chose to fight: retail banking head Carrie Tolstedt; her unit’s onetime group risk officer Claudia Russ Anderson; Chief Auditor David Julian; and Executive Audit Director Paul McLinko.
Bacon became a key witness in the government’s case against his four former colleagues. In a 100-page charging document, the OCC cited his words close to 20 times. Then in January 2021, Bacon sat for a deposition in which defense attorneys grilled him over two days. The deposition was conducted over Zoom, with around 35 names appearing in boxes on the screen. “A little intimidating, but I think I did OK,” Bacon said.
Starting in the fall of 2021, Julian, McLinko and Russ Anderson defended themselves in court in an administrative law hearing. Tolstedt, who is also the defendant in a separate civil lawsuit filed by the SEC, was not included in the proceedings. Her lawyer, Enu Mainigi, did not respond to requests for comment, but she has previously said that a full and fair examination of the facts will vindicate Tolstedt.
Bacon was told that he should expect to be one of the first witnesses called by the OCC to testify. “I looked forward to telling the truth — and my side of the story — very much,” he said.
Though most of the hearing took place over Zoom, the first several days were held in a makeshift courtroom in Sioux Falls, South Dakota. Bacon flew to Sioux Falls, which is the headquarters city of Wells Fargo Bank, expecting to testify.
On the first morning of the hearing, he was waiting in an overflow area as the proceedings got underway behind closed doors. Administrative Law Judge Christopher McNeil had determined that testimony at the hearing would be limited to what happened from 2013 to 2016. And despite the fact that Bacon worked at Wells Fargo for much of 2014, the judge ruled out his testimony. A lawyer for the OCC asked McNeil to reconsider.
“Mr. Bacon is here in person,” the attorney noted, according to a transcript. “He’s an important bank witness.” But the judge stuck to his guns. “Everything I’ve seen from Mr. Bacon is too remote in time,” he said.
When Bacon learned of the judge’s decision, he was surprised and disappointed. Several months later, with the trial still underway, an OCC lawyer asked the judge to allow Bacon to testify as a rebuttal witness.
The OCC lawyer noted that several other witnesses at the trial, including Hardison and Callahan, had testified about Bacon’s words and actions. It would be unfair, the lawyer suggested, not to allow Bacon to speak under oath for himself.
“We believe failure to allow Mr. Bacon to testify, respectfully, is highly prejudicial,” the OCC lawyer said, “and would result in a very misleading and one-sided record.”
McNeil again rejected the request to allow Bacon to testify, but this time he gave a different reason for doing so. “I found that there was a clear likelihood that the evidence that he was going to give would be either repetitive or, candidly, biased,” the judge said.
“What I found from my review of his testimony — through the exhibits that I read in the process of reaching my decisions in summary disposition — was: This is not a person I could rely on,” McNeil added.
McNeil did not elaborate on why he determined that Bacon would offer biased testimony. The judge retired at the end of last year and could not be reached for comment.
Eventually, Bacon’s feeling of regret about not being allowed to testify gave way to relief, as he contemplated the fact that he wouldn’t have to endure the stress of facing hostile questioning by lawyers for his former colleagues.
“I wasn’t looking forward to getting grilled by highly paid attorneys that are doing everything in their power to try to discredit me,” he said. “I wasn’t looking forward to that aspect of it at all.”
But sometimes disappointment crept back in. “I thought it was going to be very healthy for me,” Bacon said, “to tell the truth, nothing but the truth, and feel good about it. And I didn’t get that chance.”
Nonetheless, McNeil relied heavily on evidence involving Bacon in a December 2022 report that recommended combined penalties of $18.5 million for Julian, the chief auditor; Russ Anderson, the retail banking risk officer; and McLinko, the executive audit director. In a 78-page executive summary, the judge referenced Bacon nearly two dozen times.
Acting Comptroller of the Currency Michael Hsu has yet to announce his decision in the case. The defendants are expected to appeal any financial penalties that ultimately get assessed.
A lawyer for Julian did not respond to requests for comment. McLinko’s attorney, Timothy Crudo, said: “Mr. McLinko did nothing wrong, and we are confident that an independent court reviewing the entire record will agree.” Doug Kelley, a lawyer for Russ Anderson, said that instances of sales misconduct decreased significantly year over year as a result of work done by Russ Anderson and others at the bank.
Bacon has received financial compensation for helping the government. After the Department of Justice entered into a deferred prosecution agreement with Wells Fargo — the bank agreed to pay a total of $3 billion to the DOJ and the SEC to resolve its potential criminal and civil liability — Bacon was awarded $1.6 million for his assistance.
That’s the maximum amount payable by the Justice Department to whistleblowers under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, though Bacon ultimately received substantially less money after subtracting attorneys’ fees, taxes, travel expenses and time off work.
Bacon’s lawyer, Vincent McKnight of Sanford Heisler Sharp, said the Justice Department’s payment is evidence of the importance of the information that Bacon provided. “They see him as critical to this whole investigation, and they’re acknowledging the role that he played,” McKnight said in an interview.
One frequent impediment to the government in corporate enforcement cases, according to McKnight, is the argument that no one in a position of authority knew anything about the misconduct.
The Wells Fargo case was different. Bacon provided extensive information to government investigators about what high-level executives knew. “Michael led them into the C-suite,” McKnight said.
The OCC said through a spokesperson that it does not comment on specific banks or enforcement actions. The SEC declined to comment, and the Justice Department did not respond to requests for comment.
Wells Fargo said in a written statement: “As we’ve said many times before, at the time of the sales practices issues, the company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate conduct. This was inexcusable.”
“The past culture that gave rise to the conduct is reprehensible and wholly inconsistent with the values on which Wells Fargo was built. Our customers, shareholders and employees deserved more from the leadership of this company,” the statement read.
The bank also pointed to various moves it has made over the last six years, including the hiring of an outsider, Charlie Scharf, as CEO in 2019. Scharf has said that the OCC’s actions against certain former executives “are consistent with my belief that we should hold ourselves and individuals accountable.”
Since 2016, Wells has also made significant management changes in its retail banking unit, and all 10 senior executives on the bank’s operating committee have exited.
The $1.9 trillion-asset bank has eliminated all product-based sales goals, implemented a new incentive compensation structure in its retail banking unit and enhanced its retail banking unit’s processes in connection with customer consent.
Wells Fargo also pointed to its centralization of various corporate functions, including human resources and risk, training for retail bank employees and its agreement to pay more than $500 million to investors and customers who suffered harm.
Today, Bacon keeps boxes that he took from his San Francisco office before his September 2014 departure from the bank in a storage locker near his Florida home. His once-dark hair has grayed. He’s wanted to tell his story publicly for a long time, and he finally saw an opportunity to do so after the OCC hearing, which ended early last year.
Over several months, Bacon gave interviews jointly with his friend Loretta Sperle, who is again his colleague. Sperle left Wells Fargo in 2019 and is now a senior partner at Bacon’s consulting firm.
In one recent interview, Sperle argued that arrogance was the downfall of Wells Fargo’s top leaders. She noted that Wells emerged from the 2008 mortgage meltdown as the big bank that seemed to have managed risk most prudently.
“Coming off of the financial crisis, we were the golden bank, and could do no wrong,” Sperle said. “No one at the operating committee level would have stepped back and thought this would ever happen, because we can go to the regulators and explain why we’re doing what we’re doing.”
She added: “They always felt like, ‘We can get this to go away.’ I mean, they were great at dealing with the regulators, and I hate to say, manipulating the regulators.”
The period after the Los Angeles City Attorney’s Office sued the bank in May 2015 was a pivotal time, Sperle said.
“It just amazed me how much effort went in initially to try to come up with all this documentation to get this to all go away with the regulators. And no one stepped back and thought, ‘Wait, maybe we should really look at this hard,’ ” she said.
Instead, the reaction inside the bank was: “We’ll send you a 100-page report of why we’re doing everything right, and just go away and let us do what we do best,” Sperle said. “No one ever stepped back and ever thought this would blow up, because that doesn’t happen to Wells Fargo.”
“100%,” Bacon agreed. Then he recounted a line from his deposition testimony, which referred to the fallout from Stumpf’s widely panned appearance on Capitol Hill in 2016. “I said, ‘It literally took an act of Congress to get Wells to change,’ ” Bacon recalled. “That shows you the attitude they had.”
Bacon cites a number of reasons for speaking out publicly. He wants to defend the quality of the work that he and his colleagues in the bank’s corporate investigations unit did over the years. He thinks that Wells Fargo’s failures hold numerous lessons for the rest of corporate America, including about the dangers in burying bad news.
He says that he isn’t coming forward out of spite, but he does see himself and Sperle as two of the many innocent Wells employees who have suffered from the scandal. “We are just a representation of hundreds of thousands of people that got pushed out, lost their jobs, or continued to stay in their roles, and suffered the consequences of low morale, of low stock price, of diminished 401(k) returns,” Bacon said.
Bacon also hopes to clear up what he sees as certain misconceptions about what happened. “I want the truth to come out,” he said.
Some of his issues are relatively small. Though Bacon declined to be interviewed for the report that a law firm prepared on behalf of members of Wells Fargo’s board, it irks him that the report only briefly mentions the Team Member Misconduct Executive Committee, which he chaired, and he sees as a key part of the story. The report never notes that the committee stopped meeting after Bacon’s departure.
And even though the board report includes a discussion about efforts to make changes to the bank’s fidelity bond — which was part of a larger push to curtail employee terminations — it inexplicably fails to mention that Wells Fargo did in fact obtain an exception to the bond in 2016.
Looking at the bigger picture, Bacon takes issue with the narrative that Wells Fargo’s decentralized business model was to blame for the fake-accounts scandal. That critique is prominent, among other places, in the 2017 board report.
Bacon noted that the bank, where executives used the mantra “Run it like you own it,” was lauded for a strong risk management program after weathering the 2008 crisis in better condition than most of its competitors.
“I found it very convenient that now, in light of a scandal which everybody knew the elements of, they blame the model,” Bacon said. He argued that the decentralized business model did not prevent key executives from seeing the relevant data or being apprised of the problems. “It’s a good excuse,” Bacon said. “I thought the model worked fine if individuals would have done their job.”
In particular, Bacon blames the executives who were members of the bank’s operating committee, which met every Monday morning. The operating committee consisted of CEO Stumpf and a dozen or so executives who reported directly to him, including Sloan, Tolstedt, Loughlin and Strother. Callahan and Hardison were also members of the operating committee for parts of the period before the scandal exploded.
“All those members of the operating committee knew,” Bacon said. “They got the reporting, you know, quarter after quarter, year after year. They could have done the math.”
In sworn testimony, Loughlin, the bank’s former chief risk officer, acknowledged that the operating committee had a cultural problem, arguing that it “generally did not sufficiently challenge” the retail banking unit on the sales-practices issue.
In hours of interviews, Bacon returned to one point again and again. He wants the public to understand just how uncomplicated the scandal was. “This was simple. It was easy to detect,” he said. “Executives knew it. And they chose not to act. For whatever reason, they chose not to act.”
Read the previous installments in this series: